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What are they really saying?

We have all heard them, those sage financial sound bytes that seem so powerful and useful.  However, upon deeper reflection, they can often be very difficult to interpret and more importantly hard to use in everyday life.  However, if you decode the try meaning of these sayings, you might find useful ways to improve your financial situation.
Let’s start with the one that we hear most often – Pay yourself first.
Yes, this is a favorite one of all financial gurus.  It doesn’t mean give yourself spending money first. In fact, it is just the opposite, pay yourself first really should be save first, spend last.  To follow this advice means that before spending any money from your paycheck, you first make automatic deposits to savings, 401k, and college funds first.  After those items are finished, then you pay your bills which leaves you with your spending money for the month.
This is another one that is heard often - Don’t live beyond your means.
Yes, this one can be a little more difficult to understand.  Most people who have been working for a few years have access to credit.  This gives us the “means” to do a lot of living and this advice isn’t really about not taking on debt.  This guidance is more about using our means, credit, wisely and responsibly. For example, we shouldn’t ever use credit to pay for concert tickets but using it for a house or car is a good idea. It also means that we shouldn’t buy a house or a car that is more than we can afford too.
Why can’t we put all of our eggs in one basket?
This tip is most commonly used in connection with your investments such as your 401k allocations or other investments such as stocks, mutual funds or bonds.  Perhaps a more meaningful word is diversification which means splitting your savings between different types of investments and risk categories.  Putting the funds in your portfolio into several types of investments will keep your return from having the big downturns compared to having it all in just one type of investment.  An example of having a diversified portfolio would be having an allocation in stocks, mutual funds, bonds and insured savings.
What about this one – Manage your money, don’t let it manage you?
Yes, this is a favorite one of all financial experts who talk about managing your money.  Basically, until you discover how to budget and then stick to that budget you will have to make life decisions on how much money you have left each month.  Once you start managing your money you eventually can make life decisions based on the money you have which ends up providing more freedom and more choices because you have the money to make the decisions.
This is one that is always interesting - A penny saved is a penny earned…
The quote can have a couple of different interpretations but one that might make sense is not really related to how much we put in savings but rather on how we spend our money.   If we focus on only buying what we need and not what we want, use coupons and discounts as often as we can, and wait for things to go on sale before buying them, we are then saving a lot of money.  And if you save money by spending less on the things that you buy, it can have the same financial impact as earning more money at work.

Posted: 4/22/2015 with 0 comments

Categories: Money Matters, Retirement, Saving

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